Lending Club offers two kinds of accounts, standard and PRIME. I have both types of accounts, and today I am reviewing the Lending Club PRIME account. This week marks ten months since we opened our PRIME account so I thought it was a good time to provide a review. I opened a PRIME IRA account in April 2010 in my wife’s name when I rolled over and consolidated some of her old work 401k’s.

What is Lending Club PRIME?

[Update: In late 2011 Lending Club increased the minimum investment to open a PRIME account from $5,000 to $25,000]

PRIME is a “full service” account for investors with at least $5,000 $25,000 to invest. It is a special kind of account where Lending Club does all the work for you. Basically, you choose the rough interest rate of the loans you want to invest in, which equates to high, medium, or low risk loans and then Lending Club does the rest. There is no screening or filtering of loans, Lending Club just puts your money into a diverse group of loans based on your chosen level of risk. [Read more…]

After a tumultuous start to the social lending industry in the United States, two successful rivals have emerged from the rubble to slug it out for the leadership position in this suddenly burgeoning marketplace.

Lending Club and Prosper — located just a short drive apart from each other in the San Francisco Bay Area — both now have deep pockets to help them grow their peer-to-peer lending platforms and claim market-share from each other. In April 2010, Lending Club announced that it secured a major third round of financing, raising $25 million from Foundation Capital and other investors to bring its total capital to $53 million. Just two days after this announcement, Prosper stole the spotlight by announcing a $14.5 million round of its own ($58 million in total capital), including an investment by a fund controlled by Google CEO Eric Schmidt.

Both of these companies roared out of the gate, perhaps a bit too quickly. They initially suffered from poor loan quality and caught the ire of the SEC, which felt that they were marketing securities and thus required proper regulatory clearance to do so. Lending Club took a proactive approach, suspending its operations for six months while it went through the lengthy registration process. The company was eventually registered as a securities issuer and resumed lending operations in October 2008.

Meanwhile, Prosper pursued a wait-and-see approach that proved costly. Weeks after Lending Club received SEC approval to resume lending operations, the Agency sent Prosper a cease and desist notice, requiring the company to seek registration as well. Experiencing some problems and setbacks during the registration process, Prosper took nine months to emerge and restart loan originations in July 2009. (Of course, other early competitors like Loanio and Pertuity Direct were unable to weather the storm and shut down.) Though Prosper had initially built up a substantial market share lead, Lending Club took advantage of the nine month period where it practically had the peer-to-peer loan market to itself. In March 2010, Lending Club originated $8.6 million in new loans, nearly quadruple the $2.2 million loans created in Prosper’s marketplace.

With deep pockets, regulatory approval and little direct competition, both Lending Club and Prosper are making large strides towards living up to the initial excitement for peer to peer lending in the United States. Ironically, the ongoing credit crunch has proven to be a boon to these companies, as they step in to try to fill the gaps in sharply curtailed consumer and small business lending.

Going forward, the keys to success for both companies will be to continue to build awareness and carefully manage loan quality. Loan performance has improved at both companies after a rocky start, and they now both offer a secondary market for loans via separate partnerships with FOLIOfn. There is an increased focus on credit quality, with moderate to poor quality borrowers unable to gain approval for their loan requests. (To date, Lending Club has declined approximately 90% of its applicants who were seeking over $1 billion in loans.) Maintaining the balance between investors and borrowers is a challenging task for both marketplaces and an exodus of unsatisfied lenders could likely prove to be a fatal blow.

We’re only in the second round of what looks to be a marquee heavyweight battle. It will be exciting to see which company comes out on top.

Prosper.com is the oldest and largest social lending network in the United States, with close to 1 million members originating $200 million in peer to peer loans. The company has raised $43 million in venture capital and continues to rapidly expand. Borrowers can get loans for up to $25,000 and as more lenders commit to their loan, they’ll see their rate continue to decline. Meanwhile, lenders can place as little as $25 into a single note, or invest via Prosper’s automated portfolio plans. A burgeoning secondary market also enable investors to trade notes that have already been issued.

But is it right for you? Here are some prominent Prosper.com reviews to help you to decide:

ABC World News Tonight Examines if Prosper.com is Too Good to Be True

WNBC New York Shares the Story of Mabel Ivory, Who Tried to Borrow $15,000 for her Wedding via Prosper.com

Money Talks Looks at the Risk and Returns Lenders Can Expect from Prosper.com

ABC7 San Francisco Thinks Prosper is Prospering

Lending Club has emerged as one of the largest peer to peer loan marketplaces in America. It promises a fast loan process and low rates to borrowers, while lenders can seek higher returns than other debt instruments and the satisfaction of helping people reduce the cost of their debt, start a business or even pay for a wedding. Since Lending Club is about people helping people, we’ve compiled some of the most insightful reviews we’ve found to help you decide if Lending Club may be right for you.

CBS Evening News Explores Whether Lending Club Really Can Help Individual Borrowers Shut Out by Banks

Lending Club sets higher standards for prospective borrowers than most social lending sites. FICO credit scores must be at least 640; even lenders need a certain net worth to join. Unlike member-run auction sites like Prosper and Loanio, Lending Club sets the interest rates. The result is less guesswork for lenders and guaranteed low rates for borrowers with the best credit histories.

The opposite of most social lending sites, Loanio welcomes borrowers with poor credit. It’s an auction-based site like Prosper, but provides extra tools and more flexible terms that give have-nots a better crack at getting a loan, albeit with heavier fees.

Launched in early 2006, Prosper.com is the granddaddy of social lending sites and the best all-around community for borrower and lender alike. Application requirements allow in all but the worst credit offenders. Lenders enjoy useful loan filtering tools and a robust auction platform for bidding on the most attractive investments. Unfortunately, Prosper currently is in a quiet period likely to last well into 2009 as it files with the SEC to launch a secondary loan market competitive with the LendingClub’s. In the meantime Prosper is not accepting any new lenders or funding loans, only servicing existing ones.

Review Summary: Pertuity Direct is a financial service company that offers social financing. The platform allows borrowers and lenders to come together in an effort to work out smarter financial solutions for both and better rates as well. Social lending eliminates the traditional banks which cuts expenses. Lower expenses mean better interest rates for consumers. It makes the lending process simple and uncluttered. It is a new way of doing business for borrowers and for lenders.

The process is all online and eliminates the need to make multiple trips to the bank

The borrowing and lending are based through an online community.

The credit approval process is handled by the company so the online community does not see entire credit histories or credit scores.

The process is simple – there is no bidding for loans by the lenders and no guessing of what interest rates my be applied

Cons:

Loans are not available in all states

This is not a true peer to peer lending situation because the Pertuity Direct determines who qualifies for the loans

Lenders pay a fee for withdrawing money early (although it is a relatively small fee)

Lenders must start with a $250 minimum

Who Benefits most from this Service

Borrowers with good or great credit scores (660 or higher) that need to pay off loans, credit cards or other notes through the use of a personal loan or who are looking for a quick and easy loan process for a personal loan.

The Process:

Borrowers fill out a loan application and Pertuity Direct puts the application through the approval process. This process will determine the interest rate the borrower’s credit rating made possible. The borrower then accepts or rejects the loan offer. If the offer is accepted then the loan is funded by Pertuity.

Lenders invest their money in the Pertuity Direct approved loans through partner entities. All of the underwriting and risk management are done by Pertuity Direct.

Quick Stats

Pertuity Direct is a privately held company.

Closing costs are determined by credit scores but run between 1% and 2%

There are fees for late payments and failed payments

There is a 1% discount for electronic funds transfer

The company is lead by a team of well seasoned financial industry professionals

Loans are 3 year installment loans that can be used for any purpose and do not require collateral

The process can be completed in a little as 24 hours and funding can happen in as few as two days

Likes:

The social lending benefits lenders by giving a higher interest rate than other typical accounts and also by allowing them to assist others in need. It helps borrowers by giving them a better rate on personal loans than can be found in other traditional financial institutions.

Pertuity Bucks is the rewards program that allows the borrower to tell their story when applying for the loan. Lenders have access to the stories and award the bucks to those they find most compelling. Borrowers can lower their principle loan amounts or even potentially eliminate the principle using Pertuity Bucks.

Dislikes:

There is no physical location to go and talk with a live person if a problem occurs.

Review Summary: Fynanz is an innovative marketplace where students get some of the most competitive rates on private student loans. Students apply for loans which are funded by individual lenders’ Family, friends, alumni and others.Learn More About Fynanz Now

Fynanz is not currently accepting new borrower or lender applications.

The Fynanz OpenLoan is a people-to-people private student loan that may only be used to pay for qualified educational expenses, which includes:

Tuition & fees

Room and board

Books / computer

Living expenses & travel – even study abroad

Examination fees or examination preparation course

All other education expenses, even past due tuition bills

A student in need of education financing creates a loan request on the Fynanz website for an OpenLoan. Once the request is approved by Fynanz, the listing is posted on the online auction marketplace. Individual lenders who are also members of the Fynanz community, such as family, friends, alumni and others, competitively bid to fund the loan.

Quick Stats

Best social lending community for

:

Students who can’t obtain sufficient subsidized loans and lenders seeking a bit more safety than they would receive in a direct loan to a student.

Loan size

:

$2,500 – $20,000

Loan duration

:

5, 7 or 10 years

Interest rates

:

3.5 – 9.1%

Borrower requirements

:

Not currently accepting new borrowers.

Lender requirements

:

Not currently accepting new lenders.

Minimum investment

:

N/A

Likes:

Exclusive focus on the complex world of student loans

Good platform for formalizing loans between family members or friends.

Dislikes:

Students, as a group, are generally considered to be high risk borrowers.

Choosing the right social lending site depends on your needs, and what kind of borrower or lender you are. Do you have stellar credit – or not so much? Must you have the highest possible interest rate, or would you be just as happy making a smaller return in order to help a one-person business in a third-world country?

Whatever your social lending goals, there’s probably a site out there for you. To help in your search, here’s a quick overview of the major players.

General purpose
Prosper.com, LendingClub.com and Loanio.com are for the most part designed for stranger-to-stranger transactions, which means almost anyone can sign up to lend or borrow. All three facilitate loans between $1,000 and $25,000 for a variety of purposes, including auto, business, debt consolidation, friends and family, home improvement, military, and student and school loans. Both charge roughly the same fees. However, the LendingClub favors lenders, whereas Prosper and Loanio are much better choices for most borrowers.

Launched in 2006, Prosper, the largest mainstream social lending site in the U.S., operates on a bidding system similar to eBay’s. Borrowers post profiles of themselves designed to attract lenders, and lenders bid on the loans, with the lowest bids winning a chance to fund the loan. Almost any borrower, no matter how shaky his or her credit history, can post a profile on the site, and if the loan isn’t funded the first time, they can try again.

Based on Facebook, LendingClub is a relative newcomer to the P2P business, but it has quickly gained a foothold since its 2007 launch. Unlike Prosper’s bidding platform, LendingClub uses proprietary software to match lenders and borrowers based on common interests. It has high standards for borrowers, who must have a minimum FICO score of 640 and a debt-to-income ratio of less than 30 percent. The site is currently in a quiet period while registering with the SEC and is not accepting new lenders, though borrowers can continue to apply for loans. The site’s relaunch date for lenders has not been announced.

October-launched Loanio might be wet behind the ears compared with Prosper, the other auction-based social lending community, but Loanio is already making waves with some intriguing new features designed to help borrowers with bad credit. One is a cosigner option. Another option releases a loan when funding reaches 35 percent, eliminating the problem many borrowers have attracting enough lenders to fund the entire amount requested.

Friends and family: Virgin Money USA
Thinking of hitting up a pal or relative for money? Then there’s only one real social lending site to consider: Virgin Money USA.

Known as CircleLending until airline and record industry mogul Richard Branson bought it in 2007, Virgin Money USA is one of the oldest social lending sites. Virgin Money facilitates and documents personal, business, real estate, and student loans between friends and family members. Its big plus: borrowers don’t have to qualify. Just pick up the phone and call the toll-free number or fill out an online form with terms you’ve already agreed upon with your personal lender.

Some mainstream sites, including Prosper, have friends and family sections, but the loan process isn’t much different from stranger-to-stranger lending and probably overkill for what you need. Virgin specializes in people who already have a loan amount, term and interest rate lined up with an individual they know. The fees are highish, but Virgin can make the transaction easy, convenient, and free of much of the awkwardness that usually accompanies borrowing money from your dad or best friend.

Guaranteed Loans
In general, social lending is at your own risk. However, for lenders desiring assurance that they won’t lose money, there are a handful of sites that offer guaranteed returns. The tradeoff? Lower interest rates or longer terms.

The student-loan site Fynanz.com offers lenders partial to full guarantees of the original loan amount, depending on the Fynanz Academic Credit Score (FACS) assigned the loan. The proprietary FACS scoring system that Fynanz uses rates loans based not just on credit scores but also on factors like the student’s GPA, course of study, school, class standing, and year of study. Loan guarantees range from 50 percent to 100 percent of the loan.

The investments ” not technically loans ” that you make through this globally-aware microfinance firm have a guaranteed, up-front interest rate, so when you send in your money you know exactly what you’ll be getting in return.

Founded in 2005 and with operations in several countries, including Italy, Japan, the U.K., and the U.S., Zopa offers U.S. investors federally-insured CDs that are used to lend money to borrowers. (In order to take out a CD, a lender must donate part of the interest to a Zopa borrower.)

Helping the Poor
If you want your money to help a grocery store owner in Afghanistan or a restaurant co-op in Africa, you might want to turn to one of the sites that specialize in microloans.

Kiva links good-willed lenders with borrowers from third-world countries who need loans to buy animals, equipment, store supplies, or other goods for their businesses. Lenders earn no interest, so it’s best to look at loans through Kiva as charitable investing. (It’s also a nice educational tool if you enjoy learning about other countries.) As your loan is paid off, you can withdraw the money through PayPal or reinvest it.

Founded in 2006 and based in Denmark, MyC4 raises capital for entrepreneurs in Africa. So far, 3,500 investors from 53 countries have loaned money to over 1,000 businesses in Kenya, the Ivory Coast, and Uganda. At this time, however, MyC4 doesn’t fully serve North American investors, who cannot withdraw money from their account once they invest it.

Founded in 2006 and owned by eBay, MicroPlace is an investment firm that looks like a social lending site. Lenders invest money through security issuers listed on the site, and these funds are then invested in specific microfinance projects. Although not a social lending site, MicroPlace highly resembles one with profiles, narratives, and photos of borrowers.

Institutional Lenders
This social lending site focuses on serving institutional lenders, who partner with the site to offer borrowers competitive loans.

GlobeFunder offers what it calls “Direct-to-Consumer or D2C” loans and microfinance loans. Borrowers can borrow up to $25,000 in an unsecured loan. Lenders at the moment are limited to institutional lenders, but the company is preparing to launch an individual lender platform.

Student Loans
Many students are turning to private loans to fund their education, often as a supplement to governmental loans. Fynanz.com and GreenNote.com specialize in student loans. Virgin Money offers a special brand of family-backed student loan.

Fynanz offers a loan auction marketplace similar to Prosper’s. Students post profiles and request their desired loan amount. Fynanz assigns the loan a Fynanz Academic Credit Score (FACS) based on factors including the student’s GPA, course of study, and school, and then opens the listing to bids from lenders. Bids ultimately determine the interest rate.

Brand-new GreenNote, launched in June 2008, uses a students’ social network to pay for college. Students post their loan requests and then contact potential lenders – friends, family, community leaders, and anyone else in their extended social network – to help fund the loan.

As with its “family and friends” loans, Virgin’s student loans are agreements made offline between a lender and borrower and brought to the table for Virgin to document and service with automatic electronic payments. That means a student loan can be as flexible and have interest rates as low as the lender (usually mom, dad or another relative) will allow. Rates can be below market and the payment schedule flexible to the point of long deferments or complete forgiveness, at the lender’s discretion.

Virgin offers lots of helpful guidance and advice such as its “œlender blender” calculator for students using P2P loans as a supplement to scholarships, grants, and federal loans.
The Student Payback program lets students borrow from the same lender up to 10 times over the course of their studies for one servicing fee, handy for parents who would like to make multiple loans to their student over several years’ time. The downside: Virgin doesn’t service loans made up of money from more than one source. In other words, your aunts, uncles and friends can’t pitch in, too, and receive monthly individual payouts from Virgin.

Review Summary: Though it remains to be seen how many lenders it will attract, October-launched Loanio is the new BFF of poor credit risks with its panoply of tools aimed at boosting less-than-stellar borrowers.Pro: Has the best and biggest selection of borrower-friendly tools of any social lending site. Bidders enjoy control in a Prosper-like auction format.Con: Borrower fees a bit onerous.Rating:(3 out of 5 stars)

It’s everybody into the pool at egalitarian Loanio, where even borrowers with no credit history at all can request a loan.

Quick Stats

Best social lending community for

:

Borrowers with poor or nonexistent credit

Loan size

:

$1,000 – $25,000

Loan duration

:

3, 4 or 5 years

Interest rates

:

7 – 22%, set by an auction process wherein the borrower offers an interest rate and lenders bid it down.

Borrower requirements

:

Must have an Experian VantageScore of at least 569 (rated E by Loanio) or a coborrower rated E or better.

Minimum investment

:

$50

Likes:

Optional verification documents. Borrowers can make their loan request more attractive to lenders by paying an extra $35 for a Platinum Verification Listing which includes proof of photo verification, proof of income via tax documents, a bank statement, paystubs for employment and salary verification.

More time to pay. Borrowers needing more time to pay off loans can choose the four- or five-year option instead of the standard three-year loan.

Partially funded loans. One of the few social lending communities (the other is LendingClub.com) where borrowers can claim a partially funded loan if the two-week period allowed for full funding elapses, Loanio gives the go-ahead at 35 percent.

Dislikes:

Longer loan terms with no secondary market. Loanio’s largesse toward borrowers means lender money can be tied up as long as five years.

Easy for borrowers to pile up the fees. The loan origination fee already starts at 2 percent ranging to 3 percent (whereas other sites charge 1-3 percent). Loanio charges another 1% if there is a coborrower, and jacks up the interest rate by 1% if borrowers use bank drafts instead of automatic debits to make payments.

Bottom Line. Borrowers with bad credit should run not walk to Loanio.com, the most forgiving of all the social lending sites thus far. Everything is geared toward making sub-prime borrowers feel right at home except possibly the fees, and even these are not onerous when compared with the practices of predatory lenders.

Review Summary: Possibly the most vibrant of the social lending communities (now at over $100 million in loans funded), Prosper is a good mix of accessibility, personality and automation.Pro: $2 million total investment cap attracts well-funded lendersCon: Poor or nonexistent credit coupled with full funding requirement can conspire to leave the highest risk borrowers out in the cold.Rating:(4 out of 5 stars)

Prosper is a great destination for most types of loans. The fees are reasonable, the profile and lending tools flexible, and the auction format ensures everyone gets a fair shake at a mutually beneficial arrangement.

Quick Stats

Best social lending community for

:

mainstream borrowers and lenders

Loan size

:

$1,000 – $25,000

Loan duration

:

3 years

Interest rates:

:

8.44% and up, set by an auction process wherein the borrower offers an interest rate lowered by lender bids.

Borrower requirements

:

FICO score of at least 520

Minimum investment

:

$50

Likes:

Occasionally colorful, insightful borrower profiles. Photos and engaging descriptions-cum-pleas can make Prosper borrower listings one of the most fun aspects of this community. (On the other hand, nonsensical photos, misspelled words and barebones narratives can turn them into a waste of perusal time.)

Helpful portfolio tool. Rather not sift through dozens of loan listings yourself? The portfolio option lets you set up Prosper to automatically bid on loans that fit the risk profile you’ve chosen.

Groups.Any lender can create a club-within-a-club that supports specific types of borrowers, say members of the local Elks lodge.

Dislikes:

Boring new look. Maybe it’s only temporary “until Prosper can add information back to the site after SEC registration” but the flat new redesign does not do justice to the depth of this social lending community.

Bottom line: Among the most open and laissez-faire of the social lending communities, Prosper serves everyone well by welcoming most stripes of borrowers while offering lenders strong risk assessment tools.

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Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.